(Reuters) - California's top state court on Thursday upheld a measure approved by voters allowing app-based services such as Uber ( UBER ) and Lyft ( LYFT ) to consider drivers in the most populous U.S. state as independent contractors rather than as employees entitled to greater benefits.

The ruling by the California Supreme Court is a major victory for the ride-hailing industry, which has said that many companies would end or limit service in the state if they were forced to treat thousands of drivers as their employees.

The court dismissed a lawsuit by the Service Employees International Union (SEIU) and four drivers who say the 2020 ballot measure known as Proposition 22, which preserves drivers' contractor status while granting them some benefits, was unconstitutional.

Whether gig workers should be treated as employees or contractors is a crucial issue for the ride-service industry. Employees are entitled to minimum wage, overtime pay, reimbursements for expenses and other protections that do not extend to independent contractors, who can cost companies up to 30% less, according to several studies.

Uber ( UBER ), Lyft ( LYFT ) and other app-based services spent more than $200 million on a campaign to pass Prop 22, which they say will allow drivers to continue earning money while enjoying the flexibility of part-time gig work.

Prop 22, which was passed in November 2020 by nearly 60% of voters in California, allows app-based transportation services to classify drivers as independent contractors if they are paid at least 120% of the minimum wage while passengers are in the car and receive expense reimbursements and subsidies to pay for health insurance. Whether gig workers should be treated as employees or contractors is a crucial issue for the ride-service industry. Employees are entitled to minimum wage, overtime pay, reimbursements for expenses and other protections that do not extend to independent contractors, who can cost companies up to 30% less, according to several studies.

Uber ( UBER ), Lyft ( LYFT ) and other app-based services spent more than $200 million on a campaign to pass Prop 22, which they say will allow drivers to continue earning money while enjoying the flexibility of part-time gig work.

Prop 22, which was passed in November 2020 by nearly 60% of voters in California, allows app-based transportation services to classify drivers as independent contractors if they are paid at least 120% of the minimum wage while passengers are in the car and receive expense reimbursements and subsidies to pay for health insurance.